Mason Capital allowed to launch appeal in Telus fight

Euan Rocha

4 Min Read

TORONTO (Reuters) - Mason Capital Management LLC, the largest shareholder in Telus Corp (T.TO), said on Tuesday it has been granted permission to launch an expedited appeal of a court ruling that blocked it from calling a meeting of the telecom company’s shareholders.

The U.S. hedge fund has been locked in a bitter dispute with Telus for months over the Vancouver-based company’s plan to consolidate its voting and non-voting stock on a one-for-one basis. Telus, which backed down on the plan in May, revived the proposal recently.

Mason, which held 19 percent of Telus’s voting shares as of August 31, says voting shareholders paid more, on average, for their stock than non-voting shareholders and should be rewarded for that as the two classes merge. Telus argues that universal voting rights are a good corporate governance practice.

The Supreme Court of British Columbia ruled recently that Mason and CDS - the registered holder of Mason’s voting shares, could not call the meeting. Mason wanted to hold the meeting to get shareholder support for its proposal to set a minimum premium on the price that would be paid for the voting shares in a share consolidation.

Mason said it has been granted an appeal of the ruling and a hearing will be held on October 4, so that the matter may be decided before an October 17 meeting of Telus shareholders at which a vote will be held on Telus’s proposal.

The hedge fund said it believes it has strong grounds to appeal, arguing that it is critical that the owners of the Telus voting shares be allowed to vote on setting a minimum premium.

In reaction to Tuesday’s news, Telus said the British Columbia court system automatically hears appeals and that Telus is confident the appeal will fail.

A spokesman called on Mason to cease its court proceeding and “simply cast their votes at our meeting”.

NEW VOTE

Telus was forced to back down on its original plan in May, when it became clear that the proposal would not win the support of two-thirds of its voting and non-voting class shareholders. But it has revived the plan and it says it now needs the backing of only a simple majority of Telus’s voting shares, improving the odds of the proposal passing despite Mason’s opposition.

As voting shares will not see their legal rights change, Telus argues it only needs a simple majority of votes cast by these shareholders to back the plan. The plan still needs the backing of two-thirds of non-voting share votes cast, however, as the non-voting shares are being exchanged for voting shares.

Given that the non-voting shares trade at a slight discount to the voting shares, these shareholders stand to benefit from Telus’s plan and will likely see a bump-up in the price of their shares, making it simpler for Telus to get two-thirds support from this class of shareholders.

Telus contends that Mason stands to benefit by maintaining a spread between the voting and non-voting shares, and it also alleges that the hedge fund has an empty voting strategy as it holds both long positions and short positions in Telus’s stock.

It says that Mason has only a 0.02 percent stake in the company once its short position is subtracted from the shares it owns.

If Mason succeeds in its move to set a minimum premium in the case of a share consolidation, the spread between the voting and non-voting shares will likely widen. If the price of the non-voting shares drops and that of the voting shares rises, the fund will stand to reap big rewards.

Telus voting shares were up 14 Canadian cents at C$61.33 on Tuesday on the Toronto Stock Exchange, and its non-voting shares were up 12 Canadian cents at C$60.91.

As of June 30, Telus had about 174.9 million voting shares outstanding and about 178 million non-voting shares outstanding on a diluted basis.

Mason’s latest disclosure indicates that it has shorted 14.7 million voting shares and 18.0 million non-voting shares, while owning 32.8 million voting shares.